The Best Investments To Consider In 2019

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The year 2019 is now upon us and, for some people, it means they finally have a little bit of money to invest. Some people got a raise, others received a nice bonus, others came into some money in some other way. Whatever the source of the extra funds, it is very important to make sure that you invest that money in the right place, but where is that? Most of us know that there are thousands of things that you can invest in if you want to, but choosing the one that is right may seem to be very difficult.

This is a situation known as analysis paralysis, meaning you feel overwhelmed by the number of possibilities that are out there.

Occurs when an individual becomes so lost in the process of examining and evaluating various points of data that he or she is unable to make a decision with it. Analysis paralysis can occur with many decisions, including investment decisions such as buying or selling securities. The inaction it causes can easily lead to losses in a portfolio or missed chances at larger profits.

If you have extra cash and you want to put it to good use, you have to find the right investments. This does mean you have to analyze your options, but you do have to make a decision at some point. So what are the two options for you to consider in 2019?

Option 1 – Peer to Peer Lending

Peer to peer lending is becoming increasingly popular and there are now some well-established names in this field. One of them is the Lending Club, although platforms such as Prosper are equally interesting.

Lending Club is an online peer-to-peer (P2P) lending platform that takes the banker out of banking. Investors lend money directly to borrowers through the website, enabling both to benefit from the rate of interest established for each loan.

What companies like Lending Club and Prosper allow you to do, is loan money to people in the same way a bank does, but using your own money. In essence, you will become a hard money lender. The rate of return on doing so is really good, standing at around 6% on average. When you invest in peer to peer lending, what you are effectively doing is investing in other people’s ideas.

P2P lending is still a place to earn market-beating yields of up to 7%. But private investors are now competing against the world’s biggest financial institutions. So it’s important to have a good plan.

It is up to you to decide how much you want to lend in total, and how much you want to lend to each individual. For instance, it is not unheard of for people to only lend $25 to each person they support. This means the risk is relatively small.

Naturally, financial institutions have been worried about peer to peer lending for some time. That being said, a lot of financial advisors are now starting to see that the system makes sense, particularly as an investment strategy. It is very easy to become a peer to peer lender and the system is relatively safe. Add to this a rate of return of between 5% and 7%, and the fact that you can start with just $1,000, and it quickly becomes clear why this is a good system.

Option 2 – Real Estate

Real estate is perhaps the most traditional form of investment of all. Most people would love to own an investment property, seeing quite a lot of money in it. However, being a landlord is hard work and not everybody is cut out for it. A lot of people try to invest in real estate, find it much harder than they had expected, and end up losing their investment.

That said, you can invest in real estate and not become a landlord. This is possible in a number of different ways. One is to become a hard money lender once again, and work with fix and flippers who do the hard work for you. Another is to purchase real estate notes instead of entire pieces of real estate. The latter is a very interesting proposition for those who want to invest their own money. Essentially, it means that you lend money to an investor who manages the properties, and who pays you interest or dividend in return. They do the hard work, you supply the money.

Naturally, real estate is risky and you never know whether you will truly get value for money. However, you can mitigate this risk by going through new types of channels such as Fundrise.

Fundrise is the first service that makes the benefits of private market real estate investing available to you through one simple platform. By combining technology with new federal regulations, we bring the once-unattainable world of private investments directly to you.

Through Fundrise, people with relatively small amounts of money, from as little as $1,000 in fact, can invest in real estate in a very hands off manner. So hands off, in fact, that you don’t have to have any real knowledge about the property you have invested in. Once you start to invest with Fundrise, you don’t really have to do anything anymore. The rate of return isn’t fixed, but it is claimed to be between 8.76% and 12.42%, and they have been consistent in this for five years running. That is a significant return that you could take advantage of.

Even with Fundrise, there are risks involved. One of the key risks is that it is a relatively new company, which means their data may not yet be representative of the truth. Furthermore, you give your money and allow someone else to make the important investment decisions. For some, this is a benefit because it means they will never fall victim to analysis paralysis, but others are concerned that they have no control at all.

Whichever option you choose, you will effectively become a hard money lender. But what sets you apart is that you won’t be a lender that has millions to spend. You can do this with relatively small amounts of money.

Getting a Hard Money Loan for Flipping Houses

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So, you want to get into flipping houses? Perhaps you have some extra cash, or you’re just handy at fixing things up. It’s hard to know where to begin, but one thing you will need is some cash.

Remember that it can take more money to flip a house than buying a house for your own residence, mostly because you’ll have to do more work in order to make it an attractive prospect on the market.

Doing your research on your specific location is important too.

It’s harder to flip homes in certain states, but if you’re in states such as Tennessee, Pennsylvania or New Jersey, you could be making up to 140% return on investment for your hard work.

Plus, some states such as Washington have a Usury Law that sets guidelines for all interest charges, including home loans.

If you don’t have the spare cash to buy but have the technical know-how and the location in your favor, then you’re probably wondering where you can get the extra cash.

Most traditional lenders won’t lend you the money for house flipping, and those who do will likely want to see that you have the experience, for example, a house that you have flipped before. So, what do you do if this is all new and the bank won’t give you a loan?

Get a hard money loan.

But What’s that?

A hard money loan isn’t the same as a traditional loan or mortgage, let’s take you through what this is.

What is a Hard Money Loan?

It’s unclear where the name flipping houses comes from – whether it’s because the terms are “harder,” or the loans are available for “hard to finance” properties – hard money in some form has been around longer than most banks.

With these loans, private investors put up the money for houses that wouldn’t normally be financed by conventional mortgage providers. The collateral, in this case, is your home – a hard asset that they can collect on if things go wrong.

This may seem terrifying if you don’t know what you’re doing, but if it works outright, it can work out massively in your favor.

Know Your Loan Terms

The terms of a hard money loan are quite different from the terms of a normal home loan.

Usually, hard money loans are given for a length of a year or less, and their interest rates will be higher – around 12 percent to 18 percent, plus two to five points. Each point is usually worth 1% of the loan value, so if you borrowed $210,000 and the lender was charging two points, you’d pay $4,200.

With a conventional home loan, you pay these points at closing, but in a hard money loan, you often don’t have to pay points until the house sells.

Remember, a hard money lender is on your side. They want you to succeed so they can build a long-term relationship with you. In a hard money loan, the lender also bases the amount that you can borrow on the after-renovation value of the home, known as the ABV. This gives you greater flexibility when taking out the loan.

If the house price is currently $90,000 but the ABV is much higher, you may be able to take out the loan and cover costs such as lender fees, closing costs and selling with very little out of your own pocket.

This is how people who don’t have bags of extra cash can still manage to flip so well. Flipping can be very profitable, with the average profit in 2017 coming in at $68,143 per home. Even at just one home a year, that’s pretty comfortable living.

Tips for First-time Flipping Houses

When dipping a toe into the pool of real estate investment, it helps to be prepared. If you need to get a hard money loan, you can build the trust of potential investors by following a couple of steps:

  1. Begin networking in real estate.

It’s an industry where connections are vital. Many real estate investors often work on both sides – they also fix up and flip properties and look for investments where other people are doing the same.

New connections can provide a wealth of knowledge and may even end up being your hard money lenders.

You can join real estate associations in your area educate yourself before you decide to jump straight into the unknown and buying a property to fix up.

Your network will serve you in the long run – you’ll find out about areas where properties are selling well, discover hints and tips for staging a house, and may even make some contractor contacts to help you during the fix-up.

  1. Make a Business Plan

You need to do a thorough analysis of the property that you’re going to buy to assess if it has real value as a flip.

No one is suggesting a 30-page booklet here, but if you have laid out the basics, then hard money lenders will be much more inclined to see yours as a bankable investment, and you will be backing yourself by proving with the right information that this is a viable project.

Such details as the following are a good place to start:

  • Full address
  • Sale prices for the other homes in the neighborhood
  • Strategy and timelines for work
  • Scope of work required
  • A professional valuation of the property
  • Estimated value after renovation by a professional appraisal expert
  • Background details on anyone who is working on the project with you

Start Flipping Houses with a Hard Money Loan

If you’ve done your research and found your property, then nothing is stopping you from starting a new career or side hobby of fixing and flipping. And the best way to do this is with a hard money loan.

If you are confident that you can pay it back within the required period, you’ll find that the lack of red tape and the speed of getting the loan are highly conducive to getting your first project started.

Once you start looking, you’ll find hard loan money lenders all around, just be sure that you research them and find the one most suitable for your needs.